Latest Trends

• Loans growth slowed to 9.3% yoy vs. 10.5% due to sharp slowdown in business but household was sustained.
• Leading indicators – applications declined slightly but approvals increased slightly. Thus, approval rate now back above 50%.
• Deposits growth accelerated, LD ratio slightly lower. Excess liquidity jumped to all-time-high of RM318bn, ample.
• Average lending rate declined after stable for 3-1/3 quarters.
• Asset quality deteriorated slightly but remained strong.
• Basel III CET1, Tier 1 and RWCAR declined but remained robust. Continued assets growth but without recognition of profits until half year.

Our Take

• Leading indicators supportive of loans growth albeit slower.  Curb on DIBS may shave 0.4%-pt off loans growth (assuming 50% of applications and 50% approval rate).
• Remained vigilant and maintained 2013 loans growth projection at 9% or 2x HLIB’s GDP projection of 4.5%.
• Resumption of activities post-election coupled with ETP projects and resilient consumption (albeit slower) to help sustain loans growth.
• Resumption of decline in ALR and Spread will pressure NIM but expect continued loans growth to help mitigate.
• Asset quality remains intact and unlikely to derail earnings growth. Recent deterioration unlikely to proliferate.
• Robust capital ratios to support active capital management, especially with several banks adopting DRP.

Risks

Risk of recession and its impact on asset quality, portfolio losses (MTM and realized), non-interest income growth as well as more macro prudential measures.

Rating

OVERWEIGHT

 Positives – Best proxy to the impact of ETP (sector with third highest multiplier effect), domestic consumerism and economy, strong asset quality, robust capital ratios, capital management and M&As.

Negatives – Competitive pressure on margin, potential of global recession which would increase the possibility of rise in delinquencies, portfolio losses from foreign outflow.

Top Picks

RHB Cap & Maybank.

Source: Hong Leong Investment Bank Research - 1 Jul 2013